Instruction No. 10/2023 of August 9

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INSTRUCTION NO. 10/2023 of August 9
SUBJECT: FINANCIAL SYSTEM

• Prudential Limits on Large Exposures
• Holding of Participations in Non-Financial Companies
  Whereas it is necessary to establish prudential limits on large exposures, as well as the holding of participations in Non-Financial Companies by Banking Financial Institutions, as established in Notice No. 08/21 of July 5 on Prudential Requirements; Pursuant to the combined provisions of Article 166 of Law No. 14/21 of May 19, the General Regime for Banking Financial Institutions, Articles 31(1)(d) and (f) and Article 98(1), both of Law No. 24/21 of October 18, the National Bank of Angola Act. IT IS DETERMINED:

1. Object
   This Instruction establishes the limits on large exposures, as well as the participation of Banking Financial Institutions in the capital of Non-Financial Companies, in accordance with Notice No. 08/21 of July 5 on Prudential Requirements.
2. Scope
   This Instruction applies to Banking Financial Institutions under the supervision of the National Bank of Angola, as provided for in Law No. 14/21 of May 19, the General Regime for Banking Financial Institutions.

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3. Definitions
Without prejudice to the definitions established in Law No. 14/21 of May 19, for the purposes of this Instruction:
3.1. Indirect Holding of Quotas or Shares: A person, natural or legal, is considered to indirectly hold quotas or shares in a company when these are attributable to them, according to the criteria fixed in paragraph 2 of Article 8 of Notice No. 01/22 of January 28 on the Corporate Governance Code for Banking Financial Institutions.
3.2. Exposures: The assets and off-balance sheet items listed in Annex III to this Instruction, forming an integral part thereof.
4. General Requirements
4.1. Banking Financial Institutions must calculate the limits on large exposures and their participation in the capital of Non-Financial Companies, as provided for in Annexes I and II.
4.2. The limits fixed in this Instruction do not apply to exposures or components of exposures arising from assets directly deducted from own funds or other own fund reductions related to the asset element.
4.3. Excesses beyond the limits provided in this Instruction are subject to own fund requirements, as provided for in Annexes I and II.
5. Policies and Processes
5.1. Banking Financial Institutions must adopt operational procedures associated with solid, effective, and complete internal control policies and processes for identifying all risk concentration situations, as well as for controlling the limits referred to in this Instruction.

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5.2. For large exposure purposes, Banking Financial Institutions may consider direct risk or the risk of guarantors of operations, provided they apply consistent and uniform methodologies during the operation's validity.
5.3. For the purposes of the preceding sub-point, credit derivative protection sellers are equated to guarantors.
5.4. For exposures to collective investment bodies and securitization operations, Banking Financial Institutions must consider, in an articulated manner, direct and underlying risks of the exposure and their economic reality.
6. Concentration Risk Control
6.1. Without prejudice to the limits referred to in this Instruction, Banking Financial Institutions must identify, assess, monitor, control, and report on concentration risk, particularly in stress situations that may occur in financial markets, impacting the following elements:
a) Activity sectors of borrowers and guarantors; b) Guarantors, if opting not to consider direct risk; c) Counterparties in financial derivative operations, particularly over-the-counter traded instruments; d) Countries of allocation of operations; e) Suppliers of goods and services; and, f) Technology dependence inherent to information systems.
6.2. The National Bank of Angola may determine adjustments to exposures on the matters referred to in the preceding number, whenever deemed necessary for good concentration risk management.

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7. Information Reporting
7.1. Banking Financial Institutions must report to the National Bank of Angola information on large exposures and holdings in Non-Financial Companies, as provided for in Article 35 of Notice No. 08/21 of July 5 on Prudential Requirements, on an individual and consolidated basis, quarterly, through the forms and filling notes provided for in Annexes IV and V.
7.2. For the purposes of the preceding sub-point, if part of a financial group, the parent company must report information according to the consolidation perimeter provided for in Article 5 of Notice No. 08/21 of July 5 on Prudential Requirements.
7.3. Banking Financial Institutions must ensure that data reported in the tables attached to this Instruction are duly documented.
8. Transitional Provisions
8.1. For the calculation of prudential limits on large exposures and holdings in non-financial companies, exposures to the Angolan State expressed in foreign currency are exempt until December 31, 2023.
8.2. Exposures to the Angolan State expressed in foreign currency must be weighted at 100% starting January 1, 2027, gradually, as follows:
a) 50% (fifty percent) until December 31, 2024; b) 75% (seventy-five percent) until December 31, 2025; and, c) 85% (eighty-five percent) until December 31, 2026.
8.3. For the purposes of Annex I, the value of exposures on or linked to guarantees from Banking Financial Institutions may be deducted at 80% (eighty percent) until December 2023 and 50% (fifty percent) until December 2024, and must comply with this Instruction from January 1, 2027.

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8.4. Banking Financial Institutions must report the information required in Article 35 of Notice No. 08/21 of July 5 on Prudential Requirements, on an individual and consolidated basis, quarterly.
9. Sanctions
Non-compliance with the provisions established in this Instruction constitutes an offense punishable under Law No. 14/21 of May 19, the General Regime for Banking Financial Institutions.
10. Revocation
Instruction No. 06/23 of July 14 on Prudential Limits on Large Exposures is revoked.
11. Doubts and Omissions
Doubts and omissions resulting from the interpretation and application of this Instruction are resolved by the National Bank of Angola.
12. Entry into Force
This Instruction enters into force on the date of its publication.
PUBLISHED.
Luanda, August 9, 2023.
THE GOVERNOR
MANUEL ANTÓNIO TIAGO DIAS

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ANNEX I
Prudential Limits on Large Exposures

1. Banking Financial Institutions must not assume large exposures to a counterparty or a group of interconnected counterparties, whose value exceeds 25% (twenty-five percent) of their Tier 1 own funds.
2. Whenever large exposures concern holders of qualifying participations or the group of interconnected counterparties includes the same shareholders, the limit is reduced to 10% (ten percent) of Tier 1 own funds, unless the large exposure is to an entity.
3. The sum of the 20 (twenty) largest large exposure positions must not exceed 300% (three hundred percent) of Tier 1 own funds.
4. For the calculation of large exposures, Banking Financial Institutions must consider the exemptions and deductions provided for in paragraphs 13 to 17 of this Annex.
5. The limits established in paragraphs 1 to 3 apply equally on a consolidated basis.
6. Whenever Banking Financial Institutions exceed or are likely to exceed the limits established in paragraphs 1 to 3, they must immediately communicate the value of exposures to the National Bank of Angola.
7. For the purposes of the preceding paragraph, Banking Financial Institutions must submit an action plan within 1 (one) month, providing for their regularization within 6 (six) months.
8. Where excess assumed exposures occur, this excess must be incorporated into the Own Funds Ratios calculation, being included in Risk-Weighted Assets (RWAs) and weighted at 1250% (one thousand two hundred and fifty percent).
9. For the purposes of the preceding paragraph, the corresponding own fund requirement value is obtained by multiplying RWAs by 8% (eight percent).

CONTINUATION OF INSTRUCTION NO. 10/2023 Page 7 of 26 Categories of Exposure in Risk
10. Exposures must be considered according to the following criteria:
a) Assets at their accounting book value, in accordance with IAS/IFRS, except for exposures belonging to the trading portfolio; b) The trading portfolio at the excess of long positions over short positions; c) High, medium, medium/low, and low off-balance sheet items listed in Table 2 of Annex III, at their nominal value; and, d) Off-balance sheet items related to financial derivative instruments referred to in Annex III, at the value resulting from multiplying their notional values by the percentages of Table 1.
Table 1
Residual Maturity | Interest Rate Contracts | Foreign Exchange and Gold Contracts | Equity Securities Contracts | Precious Metals (except Gold) Contracts | Commodities (non-precious metals) Contracts ≤ 1 year | 0.0% | 1.0% | 6.0% | 7.0% | 10.0%

1 to ≤ 5 years | 0.5% | 5.0% | 8.0% | 7.0% | 12.0%
5 years | 1.5% | 7.5% | 10.0% | 8.0% | 15.0%

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11. Exposures arising from the following are not considered for large exposure limit calculations:
a) Foreign exchange operations during the normal settlement period according to commercial practices for each currency; b) Securities purchase or sale operations, during the normal settlement period according to commercial practices, up to 5 (five) business days from the payment or delivery date; c) Fund transfers, including payment, clearing, and settlement services, in any currency, as well as clearing, settlement, and custody services for financial instruments on behalf of counterparties; and, d) Firm commitment operations, up to 5 (five) business days from the date the Institution received previously underwritten assets. Associated Guarantees
12. Real and personal guarantees received by Banking Financial Institutions, meeting the criteria established in Annex IV of Instruction No. 15/21 of October 27 on the Calculation and Requirement of Regulatory Own Funds for Credit Risk and Counterparty Credit Risk, are eligible as mitigants for large exposures.
13. The guarantees referred to in the preceding paragraph may be considered within the exemptions provided for in paragraph 14 or deductions according to paragraphs 15 to 17 of this Annex.
Exemptions
14. The following exposures are exempt from the large exposure limits established in paragraphs 1 to 3:
a) To central administration, namely the Angolan State and the National Bank of Angola, expressed and financed in national currency; b) To the National Bank of Angola, expressed and financed in foreign currency; c) Fully linked to an eligible guarantee, as per Annex IV of Instruction No. 15/21 of October 27 on the Calculation and Requirement of Regulatory Own Funds for Credit Risk and Counterparty Credit Risk, granted by the National Bank of Angola; d) To central state administrations, Central Banks, international organizations, or Multilateral Development Banks to which a 0% (zero percent) risk weight is applied, according to Annex I of Instruction No. 15/21 of October 27; e) Fully linked to an eligible guarantee, as per Annex IV of Instruction No. 15/21 of October 27, granted by central state administrations, Central Banks, international organizations, or Multilateral Development Banks to which a 0% (zero percent) risk weight would be applied according to Annex I of Instruction No. 15/21; f) Assumed by a Banking Financial Institution to societies in a dominance or group relationship, provided they are included in the consolidation perimeter for prudential purposes, as per Article 5 of Notice No. 08/21 of July 5 on Prudential Requirements or equivalent foreign norms; g) Guaranteed by cash deposits, constituted in the lending Institution or an Institution in a dominance or group relationship; h) Fully linked to obligations subject to netting agreements; i) Secured by deposit certificates, issued by the lending Institution or an Institution in a dominance or group relationship, provided they are deposited in these entities; j) Arising from unused revocable credit lines, provided the contract stipulates that lines can only be used if they do not exceed the limits in paragraphs 1 to 3; and, k) Arising from contributions to deposit guarantee schemes, where Banking Financial Institutions integrating them have a legal or contractual obligation to finance them; l) Without prejudice to the preceding sub-points, exposures to central administration (namely the State) expressed and financed in foreign currency without international quotation must observe the limits in paragraphs 1 and 3. Partial Deductions to Exposures
15. 80% (eighty percent) of the value of exposures to or linked to local or regional administrations, to which a 20% (twenty percent) risk weight would be applied per Annex I of Instruction No. 15/21, must be deducted.
16. 50% (fifty percent) of the value of exposures classified as low and medium/low risk in Table 2 of Annex III must be deducted.
17. Up to 50% (fifty percent) of the market value of residential real estate may be deducted from the exposure value or any part thereof fully guaranteed by residential real estate, provided the following conditions are cumulatively met:
a) The National Bank of Angola has not assigned a risk weight exceeding 35% (thirty-five percent) to the risk positions or parts thereof guaranteed by residential real estate; b) The exposure or part thereof is fully guaranteed by:
i. Mortgages on residential real estate; and,

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18. Up to 75% (seventy-five percent) of the exposure value guaranteed by residential real estate may be deducted, under terms where the lessor retains full ownership and the lessee has not yet exercised their purchase option.
19. Up to 50% (fifty percent) of the market value of commercial real estate may be deducted from the exposure value or any part thereof fully guaranteed by commercial real estate, provided the following conditions are cumulatively met:
a) The National Bank of Angola has not assigned a risk weight exceeding 50% (fifty percent) to the risk positions or parts thereof guaranteed by commercial real estate; b) The risk position is fully guaranteed by:
i. Mortgages on offices or other commercial facilities; and,
ii. Offices or other commercial facilities and risk positions related to real estate leasing operations.
c) The value of the real estate does not significantly depend on the borrower's credit quality; and, d) Commercial real estate is completely constructed.

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ANNEX II
Limits on Holding of Participations in Non-Financial Companies

1. Banking Financial Institutions may not directly or indirectly hold quotas or shares of a Non-Financial Company or a group of interconnected Non-Financial Companies, whose amount exceeds 15% (fifteen percent) of the participating Institution's regulatory own funds.
2. The total amount of quotas or shares held, directly and indirectly, in Non-Financial Companies must not exceed 40% (forty percent) of the participating Institution's regulatory own funds.
3. Banking Financial Institutions may not hold for more than 3 (three) years, consecutively or intermittently, directly or indirectly, shares or quotas whose amount exceeds 25% (twenty-five percent) of the capital of a Non-Financial Company.
4. The following are not considered for calculating the limits defined in this Annex:
   a) Non-Financial Companies exercising activities that the National Bank of Angola considers, upon prior request by Banking Financial Institutions, to be any of the following:
   i. A direct extension of banking activity;
   ii. Auxiliary services to banking activity; and
   iii. Leasing, factoring, investment fund management, IT services management, or any similar activity.
   b) Shareholdings resulting from firm commitment operations, up to 5 (five) business days from the date the Banking Financial Institution received previously underwritten assets.
5. The limits defined in this Instruction do not apply to Investment Holding Companies subject to the supervision of the National Bank of Angola.
6. The limits established in paragraphs 1 to 3 apply equally on a consolidated basis.

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7. Whenever holdings of quotas or shares in Non-Financial Companies exceed or are likely to exceed the limits established in paragraphs 1 to 3, Banking Financial Institutions must immediately communicate the value of holdings to the National Bank of Angola.
8. For the purposes of the preceding paragraph, Banking Financial Institutions must submit an action plan within 1 (one) month, providing for their regularization within 6 (six) months.
9. Where excess assumed holdings occur, this excess must be incorporated into the Own Funds Ratios calculation, being included in Risk-Weighted Assets (RWAs) and weighted at 1250% (one thousand two hundred and fifty percent).
10. For the purposes of the preceding paragraph, the corresponding own fund requirement value is obtained by multiplying RWAs by 8% (eight percent).

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ANNEX III
Assets and Off-Balance Sheet Items to Consider for "Prudential Limits on Large Exposures" The assets listed in Table 1 and the off-balance sheet items present in Table 2, both of this Annex, must be considered.
Table 1 – Assets
Account | PCIFB | Asset Class
1.10 | CASH AND LIQUIDITIES
1.20 | APPLICATIONS IN CENTRAL BANKS AND OTHER CREDIT INSTITUTIONS
1.30 | SECURITIES AND MARKETABLE INSTRUMENTS
1.40 | HEDGE DERIVATIVES WITH POSITIVE FAIR VALUE
1.50 | CREDITS IN THE PAYMENT SYSTEM
1.60 | FOREIGN EXCHANGE OPERATIONS
1.70 | CREDITS TO CUSTOMERS
1.80 | OTHER ASSETS
1.90.10 | INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, AND JOINT VENTURES

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Table 2 – Off-Balance Sheet Items
Risk Level | Instrument Type | Account PCIFB | Off-Balance Class High | • Guarantees with credit substitute nature

• Acceptances
• Endorsements of instruments without another Institution's signature
• Irrevocable stand-by letters of credit with credit substitute nature
• Asset sales with repurchase agreements
• Unpaid portion of shares and other partially realized values
• Forward deposits (forward deposits)
• Installment asset purchases
• Transactions with recourse | 9.10.20 | Liability towards Third Parties
  Medium | • Indemnities and guarantees not having credit substitute nature
• Unused credit lines with an initial maturity exceeding one year
• Irrevocable stand-by letters of credit not having credit substitute nature
• Documentary credits, issued and confirmed, except medium/low risk ones | 9.10.30
  Medium / Low | • Unused credit lines with an initial maturity of one year or less and irrevocable
• Documentary credits where shipping documents serve as guarantee and other potentially automatic settlement transactions | 9.10.30
  Low | • Unused credit lines that can be unconditionally cancelled at any time without prior notice or that provide for automatic cancellation due to deterioration of the borrower's credit situation | 9.10.30 Medium | • Note Issuance Facilities (NIF), revolving underwriting facilities (RUF), and other similar instruments | 9.10.30 High | • Credit derivatives | 9.10.40 Reference value of financial instruments